Metall’s Copper Range costs unlikely to decline as forecast

Operating costs at the Copper Range mine in Michigan are unlikely to decline as much as originally anticipated, said Klaus Zeitler, president of Metall Mining (TSE), a subsidiary of West German mining giant Metallgesellschaft.

“Cost structures in mining have changed tremendously,” Zeitler told shareholders at a recent annual meeting. “It would be optimistic to think that our original goal of 60-70 US cents operating costs could still be achieved.”

He said 90 US cents is the company’s cost target for 1991. About 40% of production is sold forward at 98 US cents per lb.

When Metall bought a 96% interest in the large U.S. copper producer for $83 million in May, 1989, the company immediately embarked on a 3-year capital expenditure program designed to modernize the operation, increase production levels and reduce operating costs. At that time, the mine was producing about 87 million lb. copper per year at a total operating cost of US$1 per lb.

By the end of 1990, Metall had boosted production to 94.4 million lb., but the price of reorganization proved higher than expected and total operating costs increased to US$1.08 per lb. Copper Range Mining reported a loss in the fourth quarter of 1990.

Lower milling recovery rates and ore grades resulted in further losses in the first quarter of 1991. This time, Metall’s earnings followed suit — the company lost $3.97 million (10 cents per share) compared with earnings of $2.17 million (six cents per share) in the first quarter of 1990.

Metall’s first-quarter earnings were also adversely affected by losses at lead-zinc producer Cominco (TSE) and declining profits at Teck (TSE). Metall owns a 10.6% interest in Cominco and a 10.1% interest in Teck.

Meanwhile, the company has received formal approval to operate its 49% owned Cayeli copper-zinc project in Turkey. The project was also given preferred tax and investment status and a tailings disposal certificate.

Cayeli is estimated to contain preliminary reserves of 12 million tons grading 4.7% copper and 7.3% zinc. Construction of the underground mine, at a capital cost of $112 million, is expected to begin once financing has been arranged.